Construction sector still waiting for recovery and growth, says Arcadis report

A disappointing orders pipeline has left the construction industry waiting for growth, says Arcadis’ quarterly Market View report.

While UK construction continues to be resilient, with output continuing to grow in real terms during 2023, expansion in 2023 has come solely from repair and maintenance work, with new build output contracting for three consecutive quarters - says the new data. 

The new orders pipeline remains weak - in real terms, orders secured in Q3 2023 are 13% below the long-term trend. 

And the latest Arcadis Market View: December 2023 suggests the low levels of replacement workload in 2023 point to continuing downward pressure on tender prices.  

Arcadis forecasts 1-2% inflation for buildings in 2024 and 3-4% for infrastructure projects.  Tender prices for buildings across the UK are forecast to increase by 3-4% in 2025. 

Nine out of 11 regions in Great Britain have seen below trend levels of orders in 2022 and 2023, pointing to a broadly based slowdown. 

Higher-than-average levels of insolvency contribute to the gloomy outlook, the report states.  

Since the start of 2022, more than 350 construction firms per month have become insolvent – 30% higher than normal.  

Paradoxically, reduced capacity following insolvency may result in higher levels of construction inflation in the future. 

The report, entitled Waiting for Growth, states individual construction sub-sectors are seeing very different expansion and contraction trends. 

It highlights evidence showing housebuilding and some commercial workloads are continuing to struggle, while in infrastructure, projects in the energy and utilities sub-sectors are proceeding at pace and have a positive outlook.   

The report highlights the UK construction markets face a paradox. 

Two years into a deep cycle of monetary tightening, output remains robust, even as forward indicators of opportunity continue on a downward path.  

Such a resilient performance is partly a result of project delays and means that contractors have stayed busier for longer than expected.  

However, recent orders were down by 20% on the comparable period and Arcadis’ internal survey data confirms this trend.  

Despite all the gloom, there are a few optimistic signs. The report said in housebuilding, recent trading updates from some leading players hint at the market being ‘past peak pain’. 

Collaborative housing joint ventures are also bringing forward much needed new housing, creating the conditions where landowners and constructors can work together to improve the viability of new build development.  

However, the report highlights that for future pipeline, the picture is one of growing stress, with all regions seeing a decline in orders over the past 12 months.

In aggregate, the regions with the strongest combination of current workload and pipeline are the North-east, boosted by a backlog of industrial work, and the South-west, with a large infrastructure pipeline.   

Simon Rawlinson, head of strategic research and insight at Arcadis, said: “Even though the UK’s growth outlook continues to look weak, early signs of a turning point in the economic cycle are a positive for the construction sector.  

“However, contractors need to work through a weak order book and prospects for an immediate improvement in outlook are slim. 

“We retain our view on forecast price inflation across building and infrastructure in advance of seeing firm market-backed evidence of a recovery in future workload. 

“However, we note an improvement in sentiment in the housebuilding sector that should result in some recovery in workload in 2024.  Our central case for the period 2023 to 2025 remains low inflation, not deflation.” 

Click here to read the full report.